The Labor

A coat carries the work of the weaver, the spinner, and the people who made the loom; a buyer carries the wants the coat may satisfy. Before the margin became the organizing idea of value, the classical economists sought a durable explanation of exchange in the conditions under which things could be produced. The question was substantial: why should one reproducible good ordinarily command so much of another, and what would make that proportion change? Labor offered a common thread through objects otherwise unlike. Cloth and corn, tools and stockings, could all be traced back through their manufacture to the exertions that brought them to market. Yet the classical account was never quite the simple assertion that anything costs whatever toil has been poured into it. Smith distinguished usefulness from exchange, and an early society of independent producers from one divided among workers, capitalists, and landlords. Ricardo admitted scarcity and utility at the entrance to his theory, and the effects of capital within it. To understand what the margin changed, we must first give the argument it changed its proper shape.

Smith's simplest account makes relative labor the rule of exchange among producers who keep the whole product of their work. In his imagined hunting society, a beaver that ordinarily requires twice the labor of a deer should exchange for two deer. Otherwise one occupation would secure less for comparable exertion than the other. The comparison already needs adjustments: an hour of unusually difficult work, or work demanding acquired dexterity, cannot simply be counted as an ordinary hour. And Smith expressly places this account before accumulated stock and privately appropriated land. Once an employer advances materials and subsistence, the sale must ordinarily yield a profit as well as replace the advance; once a landlord controls the ground, rent enters the price of much of its produce. The labor required to obtain a good is then only one part of Smith's account of what it commonly commands. His theory of production leads directly into a theory of distribution, because the price that sustains the activity has to support the claims of those who supply its labor, stock, and land. The older theory was already concerned with the institutions behind the apparent simplicity of a price.¹

The labor spent in making a thing and the labor its sale will purchase are different quantities, and the distinction runs through the disagreement between Smith and Ricardo. Smith uses labor commanded as a measure of the owner's purchasing power: possession of the good gives him command over so much of the work of others. Ricardo objects that this cannot be treated as interchangeable with the labor necessary to produce the good. A change in the wage can change how much work a commodity buys without changing how much work its production requires. Ricardo therefore places relative production requirements at the center of his account, including the labor embodied in tools, buildings, and materials as well as the final worker's exertion. His stockings carry the work of the cotton grower, the shipbuilder and sailor, the spinner and weaver, and the people who built their machinery. An improvement anywhere along that chain may reduce the labor necessary to deliver the stockings, and thereby reduce their relative value in the circumstances his theory describes. The argument concerns the conditions of reproduction through a whole productive system; counting the hours at the last bench would miss much of its content.²

Ricardo's argument applies to useful goods that competition can reproduce, and he states both qualifications before developing it. A thing that contributes nothing to anyone's gratification has no exchangeable value merely because it was difficult to obtain. Scarce pictures, rare coins, and certain wines occupy a different category: additional labor cannot freely multiply the objects desired, so their value responds to the wealth and inclinations of those who want them. Even among reproducible goods, equal amounts of labor need not produce equal prices when capital is committed for different lengths of time or in different proportions. Ricardo devotes a section of his opening chapter to that modification. A product completed and sold after one year and another requiring a second year's advance place different demands on capital; a common rate of profit then enters their relative prices. These are qualifications made by the author of the theory itself. The unsold object made with immense effort and the irreplaceable painting therefore do not, merely by being named, refute the proposition he set out to defend. The substantial dispute concerns how much relative labor can explain within its stated domain, and how to account for the interacting conditions that lie beyond a bare count of hours.³

The classical distinction between natural and market price also gives demand an active place in the movement of production. Smith's natural price covers wages, profit, and rent at their ordinary rates; the actual market price may stand above or below it. If too little cloth arrives for the demand of buyers willing to pay that natural price, competition among them can raise the price. The resulting earnings attract resources toward cloth; an excess supply produces pressure in the other direction. Smith also discusses monopolies, privileged trades, manufacturing secrets, and exceptional land as reasons a high price may persist. There is already a theory of shortage, competition, and adjustment here. What it does not yet supply is the later marginal analysis of how a buyer distributes limited means across alternative uses, or how willingness to surrender something for another unit changes with the quantity already held. The classical question about a reproducible good's normal exchange ratio and the marginal question about a particular increment meet in the same market. They approach its price through different parts of the process, and a useful account must explain how those parts belong together.⁴

The marginal account changes the unit of comparison while retaining production as a constraint on what can be supplied. Jevons, for all the force of his attack on inherited value theory, joins his theories of exchange and labor by examining the additional output obtainable from additional effort. A producer can redirect work toward another good; a consumer can redirect expenditure toward another use. The terms of exchange have to be consistent with both adjustments. More plentiful output changes the usefulness of the remaining increment, while the relative difficulty of producing the goods affects which increments become available. Jevons consequently recognizes a reciprocal adjustment of production and exchange, and recovers a qualified relation between exchange ratios and production costs within his own model. This is a more demanding advance than announcing that desire has displaced work. The explanatory task becomes to connect the opportunities of making with the opportunities of using: how much more can be produced, what must be given up to produce it, and what someone will surrender to obtain it. The cost of production remains in the argument, with the margin specifying the comparison it must enter.⁵

The labor theory asked an enduring question about the resources a society must devote to reproducing its goods. Its strongest arguments identified changes in productive difficulty, traced indirect labor through capital, and related ordinary prices to the continuation of production. Its limits emerge when that account is asked to explain every valuation by itself: a capacity to produce is only one side of an exchange, and useful objects can differ in what one additional unit permits their owners to do. The movement toward the margin makes that additional unit explicit. It lets the buyer's alternatives and the producer's alternatives enter the same reckoning without making labor's contribution disappear, or turning an account of price into a judgment of what anyone deserves. Smith's water and diamond brought the distinction into view; the classical argument showed why production could never be omitted from it. The next plate isolates the small quantity at which the two inquiries can meet. It is the increment.